Some trial judges have debated whether, when one or more attorneys for a proposed class are accused of ethical misconduct in a case, that is a matter only for the bar authorities or is an appropriate issue for class certification.  The Seventh Circuit recently held, quite forcefully, that misconduct by plaintiffs’ counsel is an appropriate ground for denying certification.  In my mind, this highlights how important it can be for defense counsel to inquire into how the named plaintiffs found their lawyers and the relationship between them.  That is normally part of the defense playbook, but is an issue on which plaintiffs’ counsel often try to hide behind the attorney-client privilege more than the law may permit.  It’s not unusual to find plaintiffs’ counsel skirting ethical boundaries in finding their clients and entering into an attorney-client relationship with them. 

Creative Montessori Learning Centers v. Ashford Gear LLC, No. 01-8020, 2011 U.S. App. LEXIS 23324 (7th Cir. Nov. 22, 2011) is one of numerous class actions brought under the federal Telephone Consumer Protection Act, also known as the “junk fax” statute.  This statute, designed to save fax machine owners from the annoyance and cost of unsolicited faxes, imposes draconian penalties on senders of such “junk faxes.”  When this was enacted, members of Congress probably thought they were saving some ink and paper and discouraging an annoying practice.  Few of them likely realized that they were creating a massive new target for the plaintiffs’ class action bar.  As Judge Posner’s opinion notes, making this case a class action turns a $3,000 dispute over the penalty for sending two unsolicited faxes allegedly sent to the named plaintiff into a potential $11 million case against a tiny company with three employees which may have been unaware of the statute.  This seems to be the kind of statute that really should have a prohibition on class actions – the individual penalty should be large enough to deter violators (and one could even implement enhanced penalties for repeat violators without resulting in massive potential class action liability). 

The district judge found that there was misconduct by plaintiff’s counsel in two respects: (1) promising confidentiality to a third-party “fax broadcaster” who provided information to plaintiffs’ counsel regarding faxes that she sent out for her clients; she was not told that the plaintiff’s attorneys intended to use the information to bring a lawsuit and breach the confidentiality assurance; and (2) sending a letter to the named plaintiff offering to represent it, in which plaintiff’s counsel suggested that there was already a certified class (when there was not).  The trial judge concluded that this misconduct was a matter for the bar authorities, not relevant to adequacy of representation. 

The Seventh Circuit granted permission to appeal under Rule 23(f) and vacated and remanded the class certification order.  It explained that: 

class counsel have demonstrated a lack of integrity that casts serious doubt on their trustworthiness as representatives of the class. Fed. R. Civ. P. 23(a)(4), (g). There is no basis for confidence that they would prosecute the case in the interest of the class, of which they are the fiduciaries, rather than just in their interest as lawyers who if successful will obtain a share of any judgment or settlement as compensation for their efforts.

 Class counsel owe a fiduciary obligation of particular significance to their clients when the class members are consumers, who ordinarily lack both the monetary stake and the sophistication in legal and commercial matters that would motivate and enable them to monitor the efforts of class counsel on their behalf.

. . .

Misconduct by class counsel that creates a serious doubt that counsel will represent the class loyally requires denial of class certification. 

Id. at *8-9, 13 (emphasis added; citations omitted). 

Some judges may be reluctant to engage in this kind of ethical inquiry as part of a class certification decision because it creates a sideshow, a type of “case within a case,” and puts counsel appearing before the court in a particularly uncomfortable position (and potential conflict with their client).  But the Seventh Circuit says pretty strongly here that this is an appropriate area of inquiry, and for good reason.  Judge Posner points out how, in a class action, the named plaintiffs rarely exercise any real control over their lawyers, and thus the court has to play that role in endeavoring to protect the absent class members.  Judge Posner also discusses the problems that can arise when courts are dealing with non-adversarial proposed settlements supported by both sides, although that does not seem particularly pertinent here.  In this instance, the defendant had every incentive to raise the ethical issues in defending against class certification, and thus the judge did not have to reach out into an area in which there was a lack of adversarial process.  What I see this case as demonstrating is that an important role a defendant can play in defending against class certification is to help the judge take steps to protect absent class members.  Plaintiffs’ counsel sometimes try to suggest that it is not appropriate for the defendant to assert the rights of putative class members, but defendants must do that where appropriate to aid the judge in performing his or her function.